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What should my contract include?

Peter Davidson, Information Age

17/06/2007 12:31:21

The overwhelming number of enquiries that I receive as legal adviser to the Australian Computer Society involve such questions as "Is this contract fair?"; "Should I sign this contract?"; "What should my contract include?".

In "Information Age" (April/May 2007) there was a series of articles focusing on the plight of women in the ICT industry.

Susan Bandias, in her article (page 33), correctly points out that changes in industrial law in recent years have seen the individual contract emerge as the primary basis upon which the rights and responsibilities of people working in the ICT industry are determined.

She refers to the inequalities suffered by many working women including issues such as childbirth, family responsibilities and lack of career priority, and concludes:

"Recent changes to Australia's industrial relations legislation have left many women in the ICT sector feeling vulnerable."

There is no doubt that the boom in the ICT industry over the last 20 years has resulted in an increasing demand for ICT workers in Australia and elsewhere. Most organisations seeking the services of skilled professionals do not wish to employ them as full-time employees but have chosen instead to rely upon the relationship of the independent contractor.

This has obvious financial advantages to the employing organisation as it can avoid or diminish its on-cost liabilities such as superannuation, sick leave, holiday pay, etc.

At the same time this has placed considerable pressure on ICT contractors to come to grips with the use of individual contracts and there has also emerged a burgeoning industry of recruitment firms which has brought with it its own contractual difficulties.

In many cases the ICT contractors are contracted to the recruitment firm who act as agent for the contractor to find work in the industry. Many of these arrangements mean that the contractor does not contract directly with the organisation for whom the work is being performed; either the contractor is employed by the recruitment firm and then contracted out to the employing organisation or is simply contracted directly to the recruitment firm and then put "on loan" to the employing organisation.

It is therefore essential that all ICT sector workers, male or female, need to have a basic understanding of the relationship they are entering into and need to be equipped with sufficient knowledge to enable them to negotiate fair and proper terms and conditions upon which they will perform their work.

The nature of the relationship - employee/independent contractor A fundamental importance is the identification of the true relationship between the employing organisation and the ICT worker.

If the relationship is truly that of employer and employee then the employer will become liable to remunerate the employee in accordance with any industrial instrument which operates in respect of the work to be performed. The Award or Agreement would contain relevant minimum rates of pay and conditions including hours of work, overtime, leave, redundancy, etc. Additionally legislation affecting workers' compensation and occupational health and safety would apply.

If the employer is a constitutional corporation then the provisions of the Workplace Relations Act would apply as well as relevant State legislation relating to issues such as workers' compensation. To complicate matters further if the employer has been granted a self-insurer licence under the Commonwealth ComCare compensation system, the jurisdiction of the State occupational health and safety authority is overridden by the Commonwealth occupational health and safety provisions.

If on the other hand the relationship between the employing organisation and the ICT worker is that of contractor/independent contractor then the terms and conditions upon which the work is to be done will be determined almost exclusively by the terms of the contract between the parties.

The Federal Government's Independent Contractors Act 2006 commenced on 1 March 2007 as did the supporting legislation (Workplace Relations Legislation Amendment (Independent Contractors) Act 2006).

The principal aims of the Independent Contractors Act were to firstly deal with the exclusion of State and Territory laws and secondly to establish a system of judicial review of "unfair" contracts.

The objects of the Act are stated to be:

• To protect the freedom of independent contractors to enter into services contracts; • To recognise independent contracting as a legitimate form of work arrangement that is primarily commercial (as opposed to employment-based); and • To prevent interference with the terms of genuine independent contracting arrangements.

The Act does not alter the current common law position in relation to the determination of whether a particular contract for the performance of work is an employment contract or an independent contract.

Section 5 of the Act defines a "services contract" as follows:

"A services contract is a contract for services • to which an independent contractor is a party, and • that relates to the performance of work by the independent contractor, and • that has the requisite constitutional connection.

The reference to "constitutional connection" is a reference to the corporations power set out in s.51(xx) of the Australian Constitution which was the basis upon which the Workplace Relations Act 1996 (Work Choices legislation) was based and which was found to be constitutionally valid by the High Court of Australia in late 2006.

The determination of whether a particular contract is a contract of employment or a contract for services is therefore left to the courts to determine based on common law principles which have developed. The two primary decisions are those of the High Court of Australia in Stevens -v- Brodribb Sawmilling Co Pty Ltd [1986] HCA 1 and Hollis -v- VABU Pty Ltd [2001] HCA 44.

A court in determining whether a particular contract is a contract of service (employment contract) or a contract for services (independent contract) will do so using the multi-factor test set out in the two decisions and as applied subsequently.

This will involve the court in determining the extent to which the employer exercises control over the employee particularly in the manner, place and time of performance of the work, whether the employee is free to perform work for other employers, what the arrangements are between the parties as to the payment of money (particularly deduction for taxation purposes), and the respective benefits, rewards or responsibilities that the parties assume in relation to the performance of the work.

What is clear is that regardless of the stated intentions of the parties as to the nature of the contract it is for the court to determine in each case whether the contract is truly a contract of employment or otherwise. In other words the parties are not free to determine for themselves what the true nature of the contract is because in the event of a dispute the court will determine that question on the facts of each individual case relying upon the common law principles to which I have referred.

For many years the industrial tribunals in NSW and Queensland have had the jurisdiction to determine whether or not a particular contract was unfair. If a tribunal finds that a particular contract was unfair at its inception or was fair at inception but subsequently became unfair it has power to vary the contract to make it fair and to award compensation accordingly.

The Independent Contractors Act overrides that jurisdiction and provides that the Federal Court or the Federal Magistrates Court may review an alleged unfair contract but in doing so can only have regard to the terms of the contract when it was made; not whether it was fair at the time it was made and subsequently became unfair by its operation.

What should my contract include? As pointed out above, a contract which is in fact a contract of employment will be subject to a myriad of legislative regulation however a contract for service which is a contract which establishes the relationship of independent contractor with the employing organisation must contain provision for a number of matters relevant to the relationship as it will, in all likelihood, be the one and only source of rights and responsibilities for the parties.

Typically those matters would include: • commencement date • duration of employment • remuneration (both cash and non-cash) • duties of employment or job description • working hours • leave provisions • location and mobility • probationary period • confidentiality/non-competition • termination of employment including redundancy payment • performance review • disciplinary procedure and counselling • dispute resolution • use of company equipment and facilities such as vehicles, mobile phones, etc • legal compliance • suspension/stand-down • company policies on specific issues.

Some of these matters will be dealt with in future articles, particularly confidentiality and non-competition (or restraint of trade).

Meanwhile ICT workers are advised to be vigilant and to raise any questions regarding current or proposed contracts with the ACS.

Bob Whyburn is a solicitor with Sydney firm Maurice Blackburn Cashman, and advisor to the ACS Member Advocacy scheme.